Asset-liability Management
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ASSET-LIABILITY MANAGEMENT
The process by which an institution manages its Balance Sheet in order to allow for alternative interest rate & liquidity scenarios. An approach that provide institution with protection that makes such risk acceptable. A model that enable institutions to measure & monitor risk & provide suitable strategies for their management.
Banking Risks
Credit Risk: The possibility of losses associated with a diminution in the credit quality of borrowers/counterparties. Market Risks: It is caused due to changes in the market variables having an adverse impact on the earnings of the bank or its capital.
Market Risks
Interest Rate Risk: Deregulation of interest rates has caused keen competition and exposed bank to a greater interest rate risk. Gap Risk Basis Risk Price Risk Equity Price Risk Commodity Price Risk Liquidity Risk
Banking Risks
Country Risk Business Environment Risk Operational Risk: Deficient & Fast changing internal processes, non-conducive work environment, demotivated, untrained and incompetent staff or external event and so on. Capital Risk: Sound aspect of the banking practice is the maintenance of adequate capital on a continuous basis.
Asset-Liability Management Process
Liquidity Risk Management: For measuring and managing net funding requirements, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity is adopted as a standard tool. Currency Risk: If the liability in one currency exceed the level of assets in the same currency, then the currency mismatch can add/erode value depending upon the currency movements.
Interest Rate Risk
Change in the market interest rate affect banks in a larger way A long term impact of changing interest rates is on bank’s market value of equity. The immediate impact of change in interest rates is on Bank’s earnings by change in its net interest margin.
Balance Sheet LIABILITIES
ASSETS
Capital
Cash & Bank Balance with RBI
Reserves & Surpluses
Balance with Bank
Deposits
Money at Call
Borrowings
Advances
Other Liabilities
Fixed Assets Other Assets
Balance Sheet
CAPITAL AND LIABILITIES Schedule As at 31 March 2007 As at 31 March 2006 No: Capital 1856033 856030 Reserves & Surplus 2 14166045 11643843 Deposits 3215844402 178787372 Borrowings 4 7702077 6104947 Other Liabilities & Provisions 512330768 9036871 ------------------------------------------------------Total 250899325 206429063 ================ ================
ASSETS Cash & Balances with Reserve Bank of 61231542 12145857 India Balances with banks & money at call and short notice 7 10815953 6579060 Investments 8 70326621 62723790 Advances 9 148991002 117364667 Fixed assets 10 1860995 1738682 Other assets 11 6589327 5877007 ---------------------------- ---------------------------Total 250899325 206429063 ================ ================ Contingent liabilities 12 129606897 165435677 Bills for collection 5247452 4361207
The process by which an institution manages its Balance Sheet in order to allow for alternative interest rate & liquidity scenarios. An approach that provide institution with protection that makes such risk acceptable. A model that enable institutions to measure & monitor risk & provide suitable strategies for their management.
Banking Risks
Credit Risk: The possibility of losses associated with a diminution in the credit quality of borrowers/counterparties. Market Risks: It is caused due to changes in the market variables having an adverse impact on the earnings of the bank or its capital.
Market Risks
Interest Rate Risk: Deregulation of interest rates has caused keen competition and exposed bank to a greater interest rate risk. Gap Risk Basis Risk Price Risk Equity Price Risk Commodity Price Risk Liquidity Risk
Banking Risks
Country Risk Business Environment Risk Operational Risk: Deficient & Fast changing internal processes, non-conducive work environment, demotivated, untrained and incompetent staff or external event and so on. Capital Risk: Sound aspect of the banking practice is the maintenance of adequate capital on a continuous basis.
Asset-Liability Management Process
Liquidity Risk Management: For measuring and managing net funding requirements, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity is adopted as a standard tool. Currency Risk: If the liability in one currency exceed the level of assets in the same currency, then the currency mismatch can add/erode value depending upon the currency movements.
Interest Rate Risk
Change in the market interest rate affect banks in a larger way A long term impact of changing interest rates is on bank’s market value of equity. The immediate impact of change in interest rates is on Bank’s earnings by change in its net interest margin.
Balance Sheet LIABILITIES
ASSETS
Capital
Cash & Bank Balance with RBI
Reserves & Surpluses
Balance with Bank
Deposits
Money at Call
Borrowings
Advances
Other Liabilities
Fixed Assets Other Assets
Balance Sheet
CAPITAL AND LIABILITIES Schedule As at 31 March 2007 As at 31 March 2006 No: Capital 1856033 856030 Reserves & Surplus 2 14166045 11643843 Deposits 3215844402 178787372 Borrowings 4 7702077 6104947 Other Liabilities & Provisions 512330768 9036871 ------------------------------------------------------Total 250899325 206429063 ================ ================
ASSETS Cash & Balances with Reserve Bank of 61231542 12145857 India Balances with banks & money at call and short notice 7 10815953 6579060 Investments 8 70326621 62723790 Advances 9 148991002 117364667 Fixed assets 10 1860995 1738682 Other assets 11 6589327 5877007 ---------------------------- ---------------------------Total 250899325 206429063 ================ ================ Contingent liabilities 12 129606897 165435677 Bills for collection 5247452 4361207
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